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RISTVEDT-JOHNSON, INC. v. BRANDT

October 19, 1992

RISTVEDT-JOHNSON, INC., a Tennessee Corporation, and CUMMINS-ALLISON CORP., Plaintiffs,
v.
BRANDT, INC., a Wisconsin Corporation, Defendant.


Rader


The opinion of the court was delivered by: RANDALL R. RADER

MEMORANDUM OPINION

 Plaintiffs, Cummins-Allison Corporation and Ristvedt-Johnson, Inc., (Cummins) sued Brandt, Inc. for infringement of several patents. These patents cover high-speed coin sorting machines. On October 1, 1991, after a lengthy trial, a jury concluded that Brandt had willfully infringed Cummins' three patents -- U.S. Patent Nos. 4,098,280, 4,234,003, and 4,444,212. The jury awarded Cummins $ 5,338,973 in damages for infringement from May 1988 to March 1989. *fn1"

 Brandt continued to infringe these same patents after the close of discovery in March 1989. The jury did not consider the infringement occurring from April 1989 to September 1991 -- a time frame also known as the "update period." In November 1991, Cummins filed a separate complaint, Civil Action No. 91-C-7016. In this action, Cummins alleged that a new Brandt coin sorter, the Mach 8, infringed the same three patents. Brandt agreed "that the issue of infringement with respect to the Mach 8 and the analysis thereof is no different than with respect to the Mach 10." Transcript of Proceedings, June 22-23, 1992, at 7. (Tr.) Therefore, with the parties' agreement, this court consolidated the November 1991 action with the trial of damages for the update period. In June 1992, this court held a two-day bench trial to determine damages accruing during the update period and for infringement by the Mach 8.

 DAMAGES

 Section 284 of title 35 governs recovery of damages for patent infringement:

 Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.

 When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.

 The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

 35 U.S.C. § 284 (1988).

 Lost Profits

 Proof of infringing sales does not automatically entitle a patent owner to lost profits. Kaufman Co. v. Lantech, Inc., 926 F.2d 1136, 1141, 17 USPQ2d 1828, 1831 (Fed. Cir. 1991). To recover lost profits, a patent owner must prove that, absent infringement, it would have made the infringer's sales. In other words, a patent owner must show that the infringement caused it to lose sales. In addition, a patent owner must provide sufficient evidence for computation of the profit loss. Standard Haven Prods. v. Gencor Indus., 953 F.2d 1360, 1372, 21 USPQ2d 1321, 1331 (Fed. Cir. 1991), cert. denied, 121 L. Ed. 2d 28, 113 S. Ct. 60, 61 U.S.L.W. 3256 (U.S. 1992); see Micro Motion, Inc. v. Kane Steel Co., 894 F.2d 1318, 1322, 13 USPQ2d 1696, 1699 (Fed. Cir. 1990). This evidence may take the form of lost sales, price erosion, or increased expenses. Lam, Inc. v. Johns-Manville, Corp., 718 F.2d 1056, 1065, 219 USPQ 670, 675 (Fed. Cir. 1983).

 A patent owner need not prove patent infringement damages with absolute certainty. Rather, a patent owner need only show a reasonable probability that it would have made the sales. Id. If a patent owner is unable to determine the amount of damages with precision, the court resolves doubts against the infringer. Id.

 To show that infringement caused the loss of profits, a patent owner may proffer evidence satisfying either one of two tests: a four-part test with origins in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156, 197 USPQ 726, 729-30 (6th Cir. 1978), or the two-supplier market test. Kaufman, 926 F.2d at 1141. Sufficient evidence to satisfy either test creates an inference that the infringement caused lost profits. Standard Haven, 953 F.2d at 1372-73; Lam, 718 F.2d at 1065. If a patent owner satisfies both tests for causation, "the inference approaches conclusiveness." Kaufman, 926 F.2d at 1141.

 Under the Panduit approach, a patent owner must prove (1) a demand for the patented product, (2) the marketing and manufacturing capability to exploit that demand, (3) an absence of acceptable noninfringing substitutes, and, (4) the amount of profit the patent owner would have made. Standard Haven, 953 F.2d at 1372-73. In sum, a patent owner has the burden to prove, by a preponderance of the evidence, Yarway Corp. v. Eur-Control USA Inc., 775 F.2d 268, 275, 227 USPQ 352, 357 (Fed. Cir. 1985), that but for the infringement it would have made the infringer's sales. Bott v. Four Star Corp., 807 F.2d 1567, 1571, 1 USPQ2d 1210 (Fed. Cir. 1986).

 Under the two-supplier market test, the patent owner must show that the infringer was the only other supplier of the patented product. A patent owner need not nullify every possibility that a consumer might have purchased a different product or none at all. State Indus. v. Mor-Flo Indus., 883 F.2d 1573, 1577, 12 USPQ2d 1026, 1028 (Fed. Cir. 1989), cert. denied, 493 U.S. 1022, 107 L. Ed. 2d 744, 110 S. Ct. 725 (1990).

 Once a patent owner establishes an inference of lost profits due to infringement, the burden shifts to the infringer to show "it is unreasonable to infer that some or all of the infringing sales probably caused the [patent owner] to suffer the loss of profits." Kaufman, 926 F.2d at 1141-42. If a patent owner cannot prove entitlement to lost profits, it may recover no less than a reasonable royalty. Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 1543, 3 USPQ2d 1412, 1415 (Fed. Cir. 1987).

 Brandt's Sale of the Mach 10

 The undisputed number of Brandt's Mach 10s, the comparable model to Cummins' JetSort, sold during the course of the update period is 668. Tr. at 91, 112; PTX-560, DTX-353.

 This court next considers whether Cummins has satisfied its burden of proving causation. This court applies the four-part Panduit and two-supplier market tests. First, this court examines Cummins' evidence of compliance with the Panduit test for the update period:

 1. Demand for the Patented Product.

 The record evidence of Cummins' and Brandt's sales show an ample demand for the coin sorters. For this reason, the parties do not dispute sufficient demand for the patented product.

 2. Capability to Exploit the Demand.

 The parties agree that Cummins had sufficient manufacturing capability to meet the demand during the update period. The parties dispute, however, whether Cummins had sufficient marketing capability to exploit that demand. The chief executive officer for Cummins, Mr. John E. Jones, testified that his company had approximately 100 salesmen to market its products nationwide. Tr. at 173-174. Cummins' salesmen called upon the vast majority of Brandt's potential customers. PTX-105, see Tr. at 173-74.

 The Panduit test does not require Cummins to prove it would have made the sales. It only requires Cummins to show the capacity to market its patented product to purchasers who bought the infringing product. Cummins need not prove that it actually competed for each infringing sale. Standard Haven, 953 F.2d at 1373.

 Cummins had a sizeable force of trained salesmen who contacted the bulk of Brandt's customers. PTX-105. In sum, Cummins possessed the necessary marketing capability to accommodate an additional 668 Mach 10 sales during the update period.

 3. Absence of Acceptable Noninfringing Substitutes.

 To prove an absence of acceptable noninfringing substitutes, Cummins must show either that specific purchasers bought the patented product for its claimed advantages or that potential purchasers in the marketplace generally sought to buy the patented product for its advantages. Id. The existence of competing products does not necessarily make them acceptable substitutes. TWM Mfg. v. Dura Corp., 789 F.2d 895, 901, 229 USPQ 525, 529 (Fed. Cir.), cert. denied, 479 U.S. 852, 93 L. Ed. 2d 117, 107 S. Ct. 183 (1986). To qualify as a substitute, a competing product should possess the beneficial characteristics of the patented product. Kaufman, 926 F.2d at 1142-43. In addition, disparately higher or lower prices, absent evidence of predatory pricing or other tampering with the market, would tend to show that a competing product is not a substitute for the patented product.

 The patented product at issue is a coin sorting machine. In general terms, these machines allow an operator to pour a large quantity of assorted coins into a central hopper. The hopper funnels the coins onto the center of a rotating disc. The disc presses the coins against a guide plate. As the disc continues to rotate, the guide plate aligns the coins in single file against its outer edge or the peripheral limit guide. Coins move at high speed along this edge until released into a slot of the proper diameter. Thus, nickels find a nickel-sized slot, dimes a dime-sized slot, and so forth.

 Once in the proper slot or exit guide, the coins move out of the sorter. Counting devices detect each coin as it passes out of the coin release guides. These machines can sort and count coins at a rate of 6,000 coins per minute. For like coins, the coin sorter can sort and count at rates up to 10,000 coins per minute. Cummins and Brandt generally sold these high speed coin sorters to companies which handle vast quantities of coins, such as casinos, banks, department stores, and transportation agencies.

 Although a number of other machines sort coins with different (and often outdated) methods, the patented product uses "soft disc" technology. As already noted, the patented soft disc technology sorts with a rotating resilient rubber pad and a stationary annular guide plate. This innovative method sorts at extremely high rates of speed (up to 10,000 coins per minute), with excellent accuracy, and, due to essentially one moving part, with a fine record of reliability. Tr. at 184. None of the other "barrel," "drum," "core," "sieve," or "rail" sorters incorporate all these advantages. For instance, the core sorter processed coins at the slower rate of 600 per minute with less accuracy than the patented product. Id. The rail technology sorts up to 1,200 coins per minute with marginal accuracy and reliability. Id.

 Even "hard" disc sorters do not enjoy the advantages of "soft" disc technology. Hard disc sorters deposit coins on a solid metal disc. In the 1970's, Brandt introduced its Model 960 hard disc sorter. The Model 960 could sort coins at a rate of 3,000 per minute. In addition, in the early 1980's, Brandt sold a Childers Corporation soft disc sorter capable of sorting 6,000 coins per minute. Brandt ...


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